First Class, Inc., expects to sell 26 comma 000 pool cues for $ 13.00 each. Direct materials costs are $ 2.00, direct manufact
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WACC Estimation
On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to raise and invest $20 million in new projects. The firm's present market value capital structure, here below, is considered to be optimal. There is no short-term debt.
Debt $30,000,000
Common equity 30,000,000
Total capital $60,000,000
New bonds will have an 7% coupon rate, and they will be sold at par. Common stock is currently selling at $30 a share. The stockholders' required rate of return is estimated to be 12%, consisting of a dividend yield of 4% and an expected constant growth rate of 8%. (The next expected dividend is $1.20, so the dividend yield is $1.20/$30 = 4%.) The marginal tax rate is 40%.
1. In order to maintain the present capital structure, how much of the new investment must be financed by common equity? Enter your answer in dollars. For example, $1.2 million should be entered as $1200000.
$
2. Assuming there is sufficient cash flow for Tysseland to maintain its target capital structure without issuing additional shares of equity, what is its WACC? Round your answer to two decimal places.
%
3. Suppose now that there is not enough internal cash flow and the firm must issue new shares of stock. Qualitatively speaking, what will happen to the WACC? No numbers are required to answer this question.
I. rs will increase and the WACC will decrease due to the flotation costs of new equity.
II. rs will decrease and the WACC will increase due to the flotation costs of new equity.
III. rs and the WACC will not be affected by flotation costs of new equity.
IV. rs and the WACC will increase due to the flotation costs of new equity.
V. rs and the WACC will decrease due to the flotation costs of new equity.
-Select- one above IIIIIIIVV
Answer:
The answer is III.
rs and the WACC will increase due to the flotation costs of new equity.
Solution:
It is given that,
Equity is $30,000,000.
Debt is $30,000,000.
The amount of fund raised is $20,000,000.
The formula to calculate weight of equity is given below:
Substitute $30,000,000 for equity and $30,000,000 for debt in the formula,
= 50%
Since weight of equity is 50% and to maintain this capital structure, company should finance the 50% of funds
Amount financed by common equity = $20,000,000 * 50%
= $10,000,000
Crusoe's opportunity cost for producing a pound of berries would be 0.4 pounds of fish.
<h3>What is the opportunity cost of the fish?</h3>This can be found as:
= Change in quantity of fish / Change in quantity of berries
Solving gives:
= (30 - 26) / 52 - 42
= 4 / 10
= 0.4 pounds of fish
Find out more on opportunity cost at brainly.com/question/1549591.
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Answer:
$6.7 per direct labor hour
Explanation:
Given:
Direct labor-hours = 20,000
Fixed manufacturing overhead cost = $94,000
variable manufacturing overhead = $2.00 per direct labor-hour
Actual manufacturing overhead cost for the year = $123,900
Actual total direct labor = 21,000 hours
Now,
Total Estimated Manufacturing Overhead
= 94000 + ( 2 × 20000 )
= $134,000
And,
Predetremined Overhead Rate =
or
Predetremined Overhead Rate =
or
Predetremined Overhead Rate = $6.7 per direct labor hour